USDA appeals city win in water line grant

April 11, 2012

Winston Churchill once said "Americans can be counted on to do the right thing...once they have exhausted all other possibilities."

The City of Hood River is hoping that holds true with the U.S. Department of Agriculture.

After a local USDA hearings officer determined that the USDA violated its own policies in revoking funds from the city to complete a water line upgrade, the national office of the USDA is appealing the local USDA hearing officer decision to the national director of the USDA, claiming that the local USDA appeals officer had no authority to overturn the USDA and in fact was the one who violated the USDA's own policies.

Got all that? No? Neither does the city.

"The national office has done this, disavowing anything the Oregon state office has done," said City Attorney Dan Kearns. "This is a fairly bizarre thing to happen."

Kearns received a copy of the appeal in the mail late Thursday, and notified city officials on Friday.

"It prompted me to get a little upset," said Mayor Arthur Babitz. "And I wrote a letter to (senators Ron) Wyden and (Jeff) Merkley and told them it's time for someone to talk to the Secretary of Agriculture and tell him his staff is trying very hard to embarrass him."

“Senator Merkley has been tracking this issue since the city brought it to his attention last summer. Hood River is currently responding to an appeal to the Agency and our office stands ready to assist in any way we can to ensure the community receives the funds that will be essential to making progress on a critical water infrastructure project," said Merkley spokesperson Jamal Raad.

The USDA is due to rule on its own appeal by the end of the month and the water line saga will drag out at least until then - and possibly further.

The USDA originally revoked nearly $6 million in funds the city had for the project last year, saying the funds were excess, while the city contended they were necessary to finish a project to upgrade the city's 100-year-old water transmission line.

In the appeal of the hearing officer's decision, the USDA contends that overturning its decision to take back the funds was incorrect, and that even if the ruling is upheld, also contends that it holds discretion over the distribution of the funds and should not be required to return them to the city even if it loses the current appeal.

Kearns jumped on that language in the city's response calling it "a not-so-veiled threat" and encouraged the USDA National Appeals director to decline the USDA's appeal.

He also seized on the USDA appeals document listing the City of Hood River as appealing a case to the national director which was found in the city's favor.

"To the extent the Appeals Division believes that the City requested the Director's review, the City hereby withdraws that request and dismisses this proceeding," he writes in a footnote.

The USDA was supposed to copy the city on any appeal of the case; however, Kearns said the appeal was filed March 30, and he did not find out until April 5. The city had five days to respond to the appeal, and Kearns said he filed the city's response Monday.

In the original appeal decision, Appeals Officer Julie Reading said that funds which were revoked should have been considered remaining funds, and not excess, as the USDA is required to make funding adjustments before the closing date of the loan.

During the initial appeals process both sides agreed that the loan closing date was Sept. 3-4, 2009, and thus Reading determined that no adjustments could be made to the loan amount for any work under the scope of the original purpose of the grant.

She concluded that upgrading the water line connections to the city's reservoir, while added later in the project, met this criteria, citing Federal Code section 178045 (f) subsection 1, which states: "Remaining funds may be used for eligible loan or grant purposes, provided the use will not result in major changes to the facility(s) and the purpose of the loan and grant remains the same."

The national office, in its appeal, disputes that the loan closed on Sept. 3 and 4, 2009, and contends that the hearings officer was wrong in declaring the funds "remaining" vs. "excess, saying that in fact it is Federal Code section 1780.44 (e) which should apply. That code section states: 'If there is a significant reduction in project cost, the applicant's funding needs will be reassessed. Decreases in RUS funds will be based on revised project costs and current number of users, however, other factors including RUS regulations used at the time of loan or grant approval will remain the same. Obligated loan or grant funds not needed to complete the proposed project will be de-obligated.'"

In her ruling, Reading stated that the USDA "erred in applying" that code section to de-obligate the funds granted to Hood River; however, the national office is appealing that decision.

Once the city's response is received by the USDA national office, a decision should be handed down within 10 business days.

"This is a water supply project in a city of 7,000 people, a waterline that is 100 years old," Babitz said. "This is what these funds were designed for; we're not doing anything squirrelly with this. It's pretty maddening because we have made no mistakes.

"We've documented everything thoroughly...we are not doing anything wrong and we still wind up getting screwed."

Also at Monday's meeting:

The city approved a design exception for Hood River Supply to allow for a 50-foot-wide driveway access for large trucks and tankers to make deliveries.

The council heard a 30-minute presentation from Columbia Riverkeepers and other groups in opposition to a proposal to send coal transport trains through the Oregon side of the Gorge - including Hood River - which encouraged the council to draft a statement opposing the plan. City staff were asked by council to draw up a sample resolution and submit it at the next meeting.

The city also agreed to provide a counter offer with conditions for one of the pieces of property it is selling to make up the funding gap for city hall renovations, and voted to remove additional properties from the market now that the sale of that property should be enough to close the gap.